Cost Pools and Cost Drivers Based on a Recent Study

Essay

Cost Pools and Cost Drivers Based on a recent study of its manufacturing operations Johnston Manufacturing Corporation has identified six resource consumption cost drivers.These cost drivers and their budgeted activity levels for the coming year are: The firm has budgeted the following costs for the year: $\begin{array}{lr}\hline\text { Engineering design } & \$ 600,000 \\\text { Depreciation-building } & 50,000 \\\text { Depreciation-machine } & 40,000 \\\text { Electrical power (for factory building) } & 6,000 \\\text { Electrical power (for machining) } & 30,000 \\\text { Insurance } & 20,000 \\\text { Property taxes } & 15,000 \\\text { Machine maintenance-labor } & 11,000\\\text { Machine maintenance-materials } & 9,000 \\\text { Natural gas (for heating) } & 8,000 \\\text { Inspection of finished goods } & 7,000 \\\text { Setup wages } & 20,000 \\\text { Receiving } & 10,000 \\\text { Inspection of direct materials on receiving } & 3,000 \\\text { Purchasing } & 20,000 \\\text { Custodial labor } & 51,000\end{array}$ With the exception of the factory space cost pool, which uses machine-hours as the activity consumption cost driver, other cost pools have identical resource and activity consumption cost drivers.
Required:
1.Identify the most appropriate activity cost pool for each of the cost items and cost driver for each activity cost pool you identified.
2.Johnston has received a request to quote the price for 4,000 units of a new product.The production will require 100 engineering-hours and 4,250 machine-hours.What is the manufacturing overhead per unit the firm should use in determining the price?